(NLMK) – Duferco Joint Venture Presentation - Rustocks

NLMK
Novolipetsk Steel (NLMK) – Duferco
Joint Venture
November 2006
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Agenda
Transaction summary
NLMK-Duferco JV profile
Transaction rationale and synergies
NLMK-Duferco JV development strategy
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Transaction summary
Novolipetsk Steel (NLMK) and Duferco Group (Duferco) have agreed to establish a
Joint Venture (JV) to acquire certain steel production facilities currently owned by Duferco in Western
Europe and the USA.
NLMK acquires 50% interest in the JV for approx. USD 805 mln
Source of financing: NLMK’s existing cash funds
Duferco controls remaining 50% in the JV
JV includes 1 steel plant and 5 rolling mills with total finished steel
output in 2006 of 4.5 mln tonnes and a network of service centers
Transaction is expected to be completed by the end of 2006
Estimated synergy effect – approx. USD 330 mln
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Companies included in the JV
The main companies to be acquired by the JV include:
INDUSTRIAL GROUP
EQUITY
Duferco Clabecq S.A. (Belgium) 99.7%
Duferco La Louvière S.A. (Belgium) 87.9%
Duferco Coating S.A.S. (France) 90.6%
Acciaierie Grigoli S.p.a. (Italy) 75%
Carsid S.A. (Belgium) 100%
Duferco Farrell Corp. (USA) 100%
DISTRIBUTION GROUP
SAFEF Thionville S.A.S. (France) 100%
SAFEF Belgique S.A. (Belgium) 100%
Duferco France S.A. (France) 100%
New Steel S.N.C. (France) 100%
Duferco Profil Batiment S.N.C. (France) 100%
Duferco Aciers S.A. (France) 99.9%
Jemappes Steel Center S.A. (Belgium) 100%
Manage Steel Center S.A. (Belgium) 50.1%
Rosso Steel AS (Czech Republic) 50.0%
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Agenda
Transaction summary
NLMK-Duferco JV profile
Transaction rationale and synergies
NLMK-Duferco JV development strategy
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Joint Venture production facilities profile (1)
Duferco La Louvière S.A. (rolling mill)
Flat products producer controlled by Duferco since 1999
Production capacity
Hot rolled coils: 2.0 mln TPY
Cold rolled coils: 1.6 mln TPY
Wire rod: 0.36 mln TPY
Finished steel production in FY2006*: 2.1 mln tonnes
Employees: 1508
Location: La Louvière, Belgium
Carsid S.A. (steel mill)
Semi-finished steel producer located in Belgium controlled by
Duferco since 2004
Production capacity
Slabs: 2.1 mln TPY
Slab production in FY2006*: 1.85 mln tonnes
Employees: 1250
Location: Marcinelle, Belgium
*For financial year, ended 30 September, 2006
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Joint Venture production facilities profile (2)
Duferco Clabecq S.A. (plate mill)
Thick plates producer controlled by Duferco since 1997
Rolling capacity: 0.8 mln TPY
Plate production in FY2006*: 0.6 mln tonnes
Employees: 542
Location: Ittre, Belgium
Duferco Coating S.A.S. (cold rolling mills)
Coated steel producer controlled by Duferco since 2003
comprising two production units – Sorral and Beautor
Employees: 520
Location: Strasbourg and Beautor, France
Duferco Coating Sorral
Rolling capacity
• Hot dip galvanized steel: 0.32 mln TPY
• Pre-painted steel: 0.12 mln TPY
Finished steel production in FY2006*: 0.27 mln tonnes
Duferco Coating Beautor
Rolling capacity
• Cold-rolled steel: 0.35 mln TPY
• Electrogalvanized steel: 0.33 mln TPY
Finished steel production in FY2006*: 0.24 mln tonnes
*For financial year, ended 30 September, 2006
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Joint Venture production facilities profile (3)
Duferco Farrell Corp. (rolling mill)
Flat products producer controlled by Duferco since 1999
Rolling capacity:
Hot-rolled coils: 1.8 mln TPY
Cold rolled coils: 0.8 mln TPY
Finished steel production FY2006*: 1.6 mln tonnes
Employees: 568
Location: Farrell, PA, USA
Acciaierie Grigoli S.p.a. (heavy plate mill)
Heavy plates and forging ingots producer controlled by
Duferco since 2005
Production capacity:
Heavy plates: 0.6 mln TPY
Finished steel production in FY2006*: 0.15 mln tonnes
Employees: 135
Location: Verona, Italy
*For financial year, ended 30 September, 2006
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Joint Venture distribution facilities
Duferco Transformation Europe S.A. (DTE)
Duferco Transformation Europe is wholly owned JV subsidiary
comprising a network of service centers in the EU
DTE consists of 9 companies located in Belgium, France and
Czech Republic engaged in the distribution of products
manufactured by JV companies and third parties
Main equipment: slitting, cutting to length, blanking, profiling,
laser cutting, pressing, folding lines
Total product flow in FY2006*: approx. 1.0 mln tonnes
(85% - group products, 15% - external products)
Employees: 473
*For financial year, ended 30 September, 2006
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Agenda
Transaction summary
NLMK-Duferco JV profile
Transaction rationale and synergies
NLMK-Duferco JV development strategy
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Transaction rationale
Production profiles make NLMK and Duferco natural partners
NLMK has excess upstream (liquid steel) capacity
Duferco lacks upstream capacity and has excess rolling capacity
Strategies of NLMK and Duferco are complementary
NLMK aims to expand its upstream platform increasing
production of low cost high quality slabs and to re-roll them in its
core markets, including Europe and USA
Duferco aims to expand its rolling capacity increasing production
of high value-added steel grades
NLMK and Duferco already enjoy substantial trade volumes
During the last 10 years total trade turnover between NLMK and
Duferco exceeded USD 1.5 bln in direct supplies (3.5 mln
tonnes) and trading (2.8 mln tonnes)
In the first 10 months of 2006 NLMK sales to Duferco reached
USD 165 mln (supplies of 0.5 mln. tonnes of slabs).
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JV companies – slab/rolling balance
Thousand tonnes, FY2006*
JV FINISHED STEEL PRODUCTION
INTERNAL SLAB PRODUCTION
DUFERCO LA LOUVIERE+COATING 2 395 CARSID 1 800
DUFERCO CLABECQ 600 DUFERCO LA LOUVIERE 250
DUFERCO FARRELL 1 430 ACCIAIERIE GRIGOLI
50
ACCIAIERIE GRIGOLI 145
TOTAL JV
FINISHED STEEL PRODUCTION
4 560
TOTAL JV
SLAB PRODUCTION
2 100
incl. FLAT PRODUCTS 3 980
TOTAL JV
SLAB CONSUMPTION (incl. yield)
4 420
PURCHASED SLABS 2 320
*For financial year, ended 30 September, 2006
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Joint Venture configuration advantages
JV product mix 2006 (mln tonnes)
Well-diversified product portfolio with strong
emphasis on value added flat products
HRC
32%
HRC P&O
13%
Over 70% of JV costs are material expenses with
slabs purchasing costs being the main driver
Currently JV meets nearly 48% of its slab
requirements internally, the rest is purchased from
third parties
Other
2%
Plates
15%
Long
10%
Coated
11%
CRC +
FH
17%
NLMK will meet increasing JV requirements in slabs
JV cost structure 9m 2006
to support current production and planned growth
in flat steel output
Other costs
2.3%
D&A
1.8%
Transport
2.2%
Maintenance
3.3%
Utilities
7.7%
Operating
personnel
costs
10.1%
Material
expenses
72.6%
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Joint Venture supply flow
Duferco JV is in line with NLMK’s stated ‘Sustainable Growth Strategy 2007-2011’
Duferco JV will advance NLMK’s stated growth strategy:
Obtaining access to high quality rolling facilities allows diversification
and expansion of high value added products portfolio
Leveraging main competitive advantage through increasing
semi-finished steel production at low cost platform in Russia
Strengthening NLMK’s leadership in flat steel products in its core export
markets
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Preliminary synergies analysis
Duferco JV synergy effect is estimated at USD 55 mln per year starting 2010. Total cumulative
synergy effect is estimated at USD 330 mln
Industrial configuration
(incl. slab synergies)
$262
mln
NLMK plans to increase slabs supply to the JV rolling facilities
from 1.2 mln tonnes in 2007 to 3.6 mln tonnes in 2012
This will support output growth and guarantee balanced utilization of JV
production facilities
Plate market
synergies
$51
mln
Optimization of product mix and logistics between DanSteel, Duferco Clabecq
and Acciaierie Grigoli
Commercial synergies due to market share increase
Commercial and
marketing synergies
$17 mln
Expanding customer reach and market penetration through utilizing JV service
centers network and distribution capabilities in Europe and the US
Achieving proximity to customers in the largest and most stable export markets
Diversification
Decreasing earnings sensitivity to steel prices fluctuations due to regional and
product diversification
Strengthening market share in value added flat products
R&D synergies
Cost savings resulting from optimization of R&D and new product development
efforts (mainly in flat products and plates)
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Agenda
Transaction summary
NLMK-Duferco JV profile
Transaction rationale
NLMK-Duferco JV development strategy
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Semi-finished product strategy
Volatility of finished steel sales is lower
than that of slabs on a long-term basis
Global slab supply is expected to grow
faster than finished product
The 2 nd phase of the NLMK Technical
Upgrading Program is focused on increasing
production of slabs for JV purposes
NLMK slab supply to JV companies will grow
to 3.6 mln TPY by 2012
USD/t
Steel price volatility *
NLMK-JV COOPERATION
60%
50%
40%
30%
Standard deviation to
average period price ratio:
slab 42.7%
HR 38.1%
CR 33.9%
14 000
12 000
14 000
12 000
12 400
2 300
,000 MT
20%
10%
0%
-10%
-20%
-30%
-40%
2001Q1 2001Q4 2002Q3 2003Q2 2004Q1 2004Q4 2005Q3 2006Q2
Slab HR coil CR coil
* Slab – CIS export, FOB Baltic/Black Sea port, coils – nominal period
average base prices, fob parity point EU.
Source: CRU, MB
10 000
8 000
6 000
4 000
2 000
0
10 000
8 000
6 000
4 000
8 890
1 900
5 790
4 900
1 900
9 200
1 690
5 940
6 015
1 850
1 570
6 500
6 400
3 600
1 200
2 000
3 600
2 595
1 200 1 800
1 570
2 800
0
2007E 2007E 2009E 2009E 2012E 2012E
NLMK slabs to external sales
External slabs to JV
NLMK 6000slabs internal consumption
NLMK slabs for JV
NLMK slabs to JV
JV Internal slabs
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High value-added product strategy
Obtaining access to high quality rolling
production facilities in core markets
Development of high value-added product
portfolio that results in the reduction of
earnings sensitivity to steel cycle
Per cent share of high value-added steel*, %
Posco 60
ThyssenKrupp Steel 86
Novolipetsk Steel 2006 42
Novolipetsk Steel 2 + JV 2006
51
Novolipetsk Steel + JV 2012
after investment program
58
NLMK sales structure
before creating JV 2006
NLMK+JV sales structure in
2012 after investment program
Slabs & Pig
iron
45%
Hot-rolled
steel
13%
High valueadded
products*
42%
Hot-rolled
steel
22%
Slabs & Pig
Iron
17%
Long products
3%
High valueadded
products*
58%
Note:
* includes cold-rolled, hot-dip galvanized steel, pre-painted steel and electrical steel, plates, P&O, accord. to companies estimates
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NLMK
Novolipetsk Steel (NLMK)
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